The Australian government will increase tax breaks for struggling families in its 11th budget on Tuesday in a bid to shore up voter support in the face of rising petrol prices and last week's rise in interest rates.
Treasurer Peter Costello on Sunday confirmed the budget would give more money to low and middle income families, more money for child care and to encourage women back to work after they have children, and would spend more on the nation's roads. "This budget will invest for the nation, both in infrastructure, and in terms of our people," Costello told Australian television, adding that low and middle income earners and families would be the main beneficiaries.
The budget comes a week after Australia's central bank raised interest rates by a quarter of a percentage point to 5.75 percent to head off inflation, and with petrol prices at record highs, putting pressure on the government in mortgage belt seats.
"A government that is normally in control suddenly feels it mightn't be," political analyst Michelle Grattan said in the Sunday Age newspaper.
"The interest rate is small, but, combined with the petrol slug, it's meant the sky has suddenly darkened for Peter Costello's 11th budget."
Australia's conservative government has won four straight elections on the back of its economic management, with victory delivered by strong voter support in outer suburban seats, where people have bigger mortgages and rely more on private cars for transport. The next election is due in late 2007.
Economists expect Costello to unveil a larger than forecast surplus for 2005/06, and for 2006/07, but warn that more tax cuts could encourage the central bank to again lift interest rates to curb inflation.
Economist Chris Richardson said he expected the budget to include tax cuts worth up to A$6 billion ($4.6 billion) a year, which would counter the impact of the latest interest rate rise, which he said would cut about A$2 billion a year from spending.
"It would be better for Australia if both sides just simply sat on their hands, not another round of tax cuts and family benefits and not another rate rise," Richardson, from private forecasters Access Economics, told Australian television.
BIG SPENDING:
The government has already announced billions of dollars of extra spending, with more money earmarked for defence to pay for Australia's ongoing deployments to Iraq, Afghanistan and the Solomon Islands, and to pay for new equipment. The government has also announced plans for a new national health and welfare identity card, to cost about A$1 billion, an extra A$1.8 billion to improve mental health services, and almost A$1 billion for aged care.
Media reports say the government will also announce up to A$1 billion to improve the nation's highways, and will spend about A$300 million more a year on foreign aid.
Costello on Sunday confirmed extra money for highways, but would not comment on how much.
"There'll certainly be strong investment in roads," he said. "At the end of the day, better transport means a better economy with a higher speed limit for growth."
The government's mid-year budget review in December forecast an underlying surplus of A$11.5 billion for 2005/06 and A$9.7 billion for 2006/07.
But a Reuters poll of 18 economists produced a median forecast for a A$13.3 billion surplus for 2005/06, and a A$9.5 billion surplus for 2006/07.
The Reuters poll found a median forecast for GDP growth of 2.8 percent for 2005/06 and 3.4 percent for 2006/07, and CPI inflation of 3.0 percent for 2005/06 and 2.8 percent for 2006/07, inside the central bank's 2-3 percent target range for inflation.